| dc.description.abstract | In recent years, there has been a general increase of focus on the green transformation and with-it renewable energy and similar sources of energy. With a growing desire in various industries to be more environmentally friendly, laws and regulations have also been formed related to, among other things, emissions. The EU Commission and Intergovernmental Panel on Climate Change has defined climate targets which will affect the global power production. Models used to measure and predict the market's risk and price will, together with this shift in production, be affected. This leads to a change in the risk factor associated with the power price for traders in the financial power market. A well-known measurement for margin related to an investment, are Value-at-Risk (VaR) which, in short, measures expected losses.
The relation between VaR and changes in the transition to non-carbon energy source in power production are studied trough the following research question; “How is Value-at-Risk in European power markets affected by the transition from carbon to non-carbon energy sources?”.
By testing the hypotheses that VaR is affected by the transition to non-carbon energy sources, a dataset with historical power prices provided by National Association of Securities Dealers Automated Quotations (NASDAQ) were used to observer the historical development of VaR in the European power market. The historical change in Conditional Value at Risk (CVaR) is correspondingly studied to provide more reliability to the results. The results suggests that both VaR and CVaR has increased throughout the past decade, and volatility has become more fluctuating. This measures VaR and CVaR with less certain, as the tails of the captured measurements are increasingly fatter.
The results indicate that VaR and CVaR are affected by the transition to non-carbon energy sources. On this basis, market participants should include the risk factors associated with non-carbon energy sources in their estimates of VaR and CVaR. It can also be discussed whether these methods and models for measuring risk, still can be considered relevant tools as they are mainly built around traditional commodities such as oil and gas. | |